With non-registered businesses, the business owners are taxed directly, having to pay income tax, which can be as high as 45%, and national insurance.
However, with limited companies:
- The corporation tax rate is generally much lower than the personal tax rate;
- Business owners and directors have the option of paying themselves a combination of both salary and dividends, which is taxed less heavily;
- If you are setting up a limited company with a spouse or partner, there is always the option to split your income, which can save even more tax.
What’s more, among the above key tax saving benefits, limited companies also get access to more funding opportunities and incentives, among these are:
- Pensions. Limited companies can make contributions for all of their directors and employees, which can cut down national insurance contributions;
- Research and Development (R&D) Tax Relief. If your business carries out projects that aim to achieve an increase in the overall knowledge or capability in a particular field of science or technology, you may be eligible to claim R&D tax relief. The rate of the cash credit payable to SMEs conducting qualifying R&D activities stands at 14.5%, as of April 2014, based upon qualifying expenditure;
- Employee Incentives. Limited companies have the option of incentivising and retaining key employees through tax efficient share schemes, such as the Enterprise Management Scheme.
If you are considering incorporating your business, or would like to find out if it can be of benefit to your business, contact lee.manning@raffingers-stuart.co.uk, who can help support, advise and answer any questions you may have.